American Oil and Gas Reporter - April 2020 - 36

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failed to get the necessary two-thirds majority in both houses of the legislature.
In total, Ellis assesses, 2020 "really
was a delineation mark for us in terms of
the acceptance we got from legislators."
Historically, he observes, West Vir-

ginia's natural gas industry has been overshadowed by coal. But the shale boom
has changed that.
"We have to embrace our legacy and
impact on the state and economy, and
make sure we are advocating for things

we think will help our members, but also
the state at large," Ellis charges. "This
year, maybe, was one of the first where it
really felt like people were dialing into
our issues and listening. I was really
pleased with that."
r

Wyoming Holds 'Meaningful' Session
CHEYENNE, WY.-A "busy and meaningful" state legislative session for
Wyoming's oil and gas industry ended in
mid-March with a revamp of how ad valorem taxes are collected on mineral properties, changes in forced pooling and a
potential drilling incentive, according to
Pete Obermueller, president of the Petroleum Association of Wyoming.
Obermueller characterizes the fiveweek session, which ended March 13, as
"difficult, mostly because of HB 159,"
the ad valorem tax bill. "I never have
seen anything like it in my time in the
legislature in the sense that the bill functionally underwent two complete rewrites
over four weeks," he muses.
The bill, which was signed by Governor
Mark Gordon on March 24, changes the
timing of ad valorem tax payments on
mineral properties from biannually to
monthly. Previously in Wyoming, Obermueller explains, the first half of mineral
property taxes, which are based on annual
production, were due in November following the year of production and the
second half were due the following May.
HB 159 gradually moves the state to
monthly payment of mineral property taxes
and shortens the gap between production
and first payment. Under the bill, Obermueller details, 25% of ad valorem taxes
owed on 2019 production will be due in
October and another 25% will be due in
November this year. The remaining 50%
of 2019 taxes are split into three payments
due in April, May and June 2021.
From there, Obermueller says, the legislation directs that the frequency of tax
payments gradually increase and the first
payment move closer to the year of production until in 2027, ad valorem taxes
on 2026 production will be paid monthly
beginning in March.
PAW did not oppose the idea of monthly
tax payments, Obermueller says. The problem was how to get there. "The initial concept was just ripping off the bandage and
changing from the old system to the new
in the course of 18 months," he observes.
"That would have required companies to
(simultaneously) pay both monthly and
back taxes from the old system. It was a
doubling of our tax burden for 18 months."
He says early versions of HB 159
36 THE AMERICAN OIL & GAS REPORTER

contained complicated schemes providing
potential tax credits for paying early, followed by long-term payment plans with
rising interest rates. "At the end, all that
was stripped out in favor of this slow expansion and walk-back over seven years,
which made credits and payment plans
unnecessary," he reports.
The impetus for HB 159, Obermueller
says, has been financial difficulties primarily in the coal industry that have left
counties with tens of millions of dollars
in unpaid ad valorem taxes during the
past several years. Legislators blamed the
lag between production and tax payment,
but more important in his opinion, Obermueller says, was that Wyoming statute
provided banks and lenders a priority lien
over taxes on mineral properties.
"No other property taxpayer in
Wyoming had that particular provision,
only minerals," he points out."
HB 159, in conjunction with legislation
approved in 2019, fixes that loophole by
providing counties a secured, priority
lien for payment of ad valorem taxes
going forward. "In my previous job," remarks Obermueller, who joined PAW in
January 2019, "I tried to get that changed
five or six years ago, but met a lot of resistance. I am convinced that had we
done that back then, we would not have
had HB 159 this year."
Forced Pooling
Another significant bill for the state's
oil and gas industry, Obermueller continues,
is HB 14 on forced pooling. "We worked
pretty hard on it throughout the interim
with land- and mineral-owner groups and
legislators," he says, noting the bill sailed
through the legislature and was signed by
Governor Gordon on March 9.
Previously in Wyoming, Obermueller
says, interest owners who chose not to
participate in a well were assessed a 300%
risk penalty. While that is not unusual, he
reflects, the risk penalty was applied to
unleased mineral owners as well as nonparticipating working interests.
HB 14 lowers the risk penalty to 200%
and grants an unleased mineral owner a
16% statutory royalty during the riskpenalty phase.
"It is pretty common in other states to

have a statutory royalty backstop, but we
never have had one in Wyoming, so it is
a pretty big change," Obermueller assesses,
adding that PAW was "onboard with it."
A third significant piece of legislation
affecting Wyoming producers is HB 243,
which is intended to provide a temporary
severance tax break for new drilling.
Signed by Governor Gordon on March
26, Obermueller outlines, HB 243 will
reduce the state's 6.0% severance tax rate
by 2.0 percentage points for the first six
months of production and by 1.0 percentage
point for the next six months for newly
drilled wells when commodity prices are
below a certain level. The strike prices
are based on 12-month rolling averages,
and are $2.95 an Mcf Henry Hub for
natural gas and $50.00 a barrel West Texas
Intermediate spot for crude oil.
Earlier versions of HB 243, published
reports indicate, would have increased
the severance tax rate by 2.0 percentage
points when gas prices exceeded $3.50
and at oil prices ranging from $70.00 to
$80.00, but that was removed as part of
the compromise that led to passage, Obermueller says.
Industry House Cleaning
Three fairly noncontroversial bills
passed by the legislature and signed by
the governor, Obermueller reports, are
SF 45, HB 3 and HB 13.
The former moves authority over commercial Class II disposal wells from the
Wyoming Department of Environmental
Quality to the Oil & Gas Conservation
Commission. The WOGCC already had
authority over private disposal wells, but
not commercial ones, Obermueller notes.
"It's a pretty good bill," he assesses.
"We have had a lot more interest in
dealing with produced water as a midstream issue and in some ways as a midstream asset, depending on what the water
can be used for. "This will allow service
companies to aggregate disposal operations
and result in less surface impact."
HB 3, Obermueller says, combines
functions of the Wyoming Pipeline and
Infrastructure authorities into a new state
Energy Authority. There was some concern,
SEE WYOMING PAGE 40

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